The City of Johannesburg v The South African Local Authorities Pension Fund

The City of Johannesburg and certain utilities, agencies and corporatized entities (UACs) that were wholly owned by the City had been contributing employers to the South African Local Authorities Pension Fund (SALA). On 30 June 2004, the employers gave notice of their intention to cease participation in SALA and terminate their contributions to that fund. With effect from 1 January 2005, the employers began paying contributions to another pension fund, eJoburg Retirement Fund, instead. At the time of the decision, 297 employee-members were affected, though only 118 remained in employment by the time of the hearing. The respondents, including SALA, three trade unions and three individual members of SALA, brought an application in May 2005 to challenge and set aside the employers' decision to terminate contributions to SALA. The application was heard on 7 August 2012 before Foulkes-Jones AJ. The employers raised a preliminary objection that the terminating employee-members should have been joined as parties to the litigation.

• Whether the terminating employee-members of SALA whose membership had been affected by the employers' decision should have been joined as necessary parties to the litigation
• Whether section 7C(2) of the Pension Funds Act 24 of 1956 entitles a pension fund or its board to litigate on behalf of members without joining individual members as parties
• Whether trade unions cited as applicants adequately represented the interests of all affected terminating members
• Whether the non-joinder objection applies differently depending on whether the claim is based on contract versus statute, administrative law or labour legislation

The appeal was upheld with costs, including costs of two counsel. The order of the court a quo was set aside and replaced with an order: (a) staying the application for three months pending joinder of members and former members whose rights may be affected; (b) ordering the applicants to pay the wasted costs of the respondents from the hearing of 7 August 2012, including costs of two counsel; and (c) providing that if joinder does not take place within three months, the application is dismissed with costs, including costs of two counsel.

Persons who have a direct and substantial interest in both the subject matter and the outcome of litigation must be joined as parties before a court will decide the dispute. A direct and substantial interest exists where, if the party is not joined, an order made by the court would not be res judicata against that party, entitling them to approach the court again concerning the same subject matter and possibly obtain an irreconcilable order. Employee-members of a pension fund whose membership status, contribution obligations, and benefits may be affected by an order setting aside an employer's decision to terminate contributions to that fund have a direct and substantial interest and must be joined. Section 7C(2) of the Pension Funds Act 24 of 1956, which imposes duties on pension fund boards to act in members' interests, does not authorize pension fund boards to conduct litigation on behalf of individual members without joining them as parties. The fact that joining necessary parties may involve significant numbers does not excuse non-joinder where joinder is legally required.

The court made obiter observations that: (1) it is generally inappropriate for courts to make declarations in a vacuum, referring to Oudekraal Estates (Pty) Ltd v City of Cape Town & others 2004 (6) SA 222 (SCA); (2) the order made by the court a quo left obscure its impact on various rights and obligations, including arrear contributions, the position of eJoburg fund, and whether employees would be liable for arrear contributions despite having paid into eJoburg; (3) there is obvious potential for conflict between the interests of a pension fund and those of its members, and section 7C(2) cannot be interpreted to preclude individual members from contesting actions of the board in such circumstances; (4) the court found it "somewhat ironic" that the respondents had joined 135 contributing employers whose risk of prejudice was less than that of the terminating members, but balked at joining the terminating members based on numbers. The court also noted, without deciding, that the respondents' argument about trade union representation could have raised "interesting questions of procedure" regarding whether trade unions can conduct litigation on behalf of members outside the ambit of section 38 of the Constitution and outside Labour Relations Act institutions.

This case establishes important principles regarding joinder in pension fund disputes. It clarifies that individual members of a pension fund whose rights and interests may be directly and substantially affected by litigation must be joined as parties, even where the pension fund itself is a party and even where trade unions representing some members are parties. The case also interprets section 7C(2) of the Pension Funds Act, making clear that this provision does not grant pension fund boards authority to litigate on behalf of members without joining them. The judgment emphasizes that courts will not make orders affecting the rights of non-parties, particularly in complex pension fund matters where the full consequences of orders may be uncertain and may prejudice different members in different ways. The case is also significant for demonstrating the application of the res judicata test to determine whether a party has a direct and substantial interest requiring joinder.